Australia’s Build-to-Rent Sector Gains Lender Interest in 2023

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According to a recent Commercial Real Estate Services (CBRE) survey, Australia’s build-to-rent (BTR) residential property sector is capturing the interest of both domestic and international lenders.

Australia’s industrial and logistics sector remains the preferred choice for lenders. Still, BTR has secured second place in surveying 31 banks and non-bank lenders, driven by solid growth prospects, population projections, and a favourable taxation environment.

Although the survey indicated a moderate decline in lenders expressing a desire to expand their commercial loan books, CBRE’s Managing Director of Debt & Structured Finance, Andrew McCasker, emphasised that domestic banks, offshore banks, and non-bank lenders are still actively participating in various asset classes across Australia. 

“The majority are willing participants in the industrial and build-to-rent sectors, and we see that continuing to build out over 2023, moving into 2024,” Mr McCasker said.

Expectations of an approximately 20 basis point increase in credit margins over the next three months were revealed in the survey, along with over 80% of institutions preferring an Interest Coverage Ratio (ICR) requirement of 1.5x for new investment-grade lending, emphasising the significance of ICR in underwriting.

CBRE’s Pacific Head of Research, Sameer Chopra, noted that industrial assets remained the preferred asset class for most survey respondents. 

“The overall reduction in lending appetite was most prominent amongst non-banks, although the results show that they are still interested in growing their BTR, residential-to-sell, and industrial portfolios,” Mr Chopra said.

While Loan Value (LVR) ratios have remained stable, the revaluation of assets in the coming months may pressure LVR, accompanied by slight increases in hedging requirements. Lenders also indicated higher credit spreads, LTV, and ICR requirements for prime office assets than their industrial counterparts.

Australia’s build-to-rent sector attracts lenders with solid growth prospects, population projections, and a favourable taxation environment, despite tighter credit conditions and a moderate decline in lending appetite.

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